12th July 2019

To the University representatives at the JNCC,

As you know, UCU is now formally in dispute with employers who are USS member institutions, owing to those employers’ refusal to protect members from costs arising from USS’s 2017 and 2018 valuations. Unless employers suddenly become more willing to negotiate than they have been thus far, there will be a strike ballot later this year, from 9 September to 30 October, in which this branch will participate.

I am writing now to outline UCU’s position and address some issues relating to the role of employers in general and this University, in particular, in bringing UCU members to the point where they appear to have no choice but to withdraw their labour.

There is not much point rehearsing everything in detail. The pattern of USS’s behaviour is well established by now: absolute opposition to any criticisms, from the Joint Expert Panel or other parties, that would require it to change its flawed valuation methodology or reform its governance; withholding key information until it is too late for that information to have any bearing on the valuation; rushing stakeholders into premature decisions and commitments by delaying its own deliberations and leaving very little time for theirs; and constantly moving the goalposts by coming up with a new, flawed argument for its approach to the valuation every time an old, flawed argument is finally undermined. Meanwhile, despite formally indicating their commitment to the Joint Expert Panel’s proposals, employers have in practice watched and done nothing while USS has rejected the most important elements.

All the evidence indicates that the same thing will happen when the Joint Expert Panel issues its second report: USS will refuse to change its methods or governance and employers will not do anything about it.

This brings me to the University’s position. No employer has provided any evidence to suggest that USS will be more welcoming towards the JEP’s second report than it was to the JEP’s first report. But the University of Birmingham has stood apart from the others, by indicating quite clearly that the JEP is destined to fail. In its response to USS’s consultation on the 2018 technical provisions, signed by Tim Jones, the University repeatedly invokes the need for ‘benefit reform’ in the next valuation cycle. ‘Benefit reform’, as staff will remember from the first phase of the dispute, tends to serve as a euphemistic code for cuts to the Defined Benefit element of the scheme, or even abolition of Defined Benefit altogether.

‘Benefit reform’ only becomes necessary if the JEP fails to achieve significant improvements to the valuation outcome. By calling for ‘Benefit reform’, the University appears to signal that there is no hope of USS accepting a conclusion from the JEP’s second report that results in a ‘no detriment’ outcome for members and employers, where benefits and contributions can be preserved as they were before the 2017 valuation. That makes sense, because such a conclusion would be the outcome if USS implemented the JEP’s first report in full in the 2018 valuation, and USS has already refused to do that. The University is probably right that the personnel who currently manage USS will not change their tune.

The University appears to believe that such ‘benefit reform’ will be proposed by the JEP. This is a mistake. Benefit reform is not part of the JEP’s remit, and its Chair, Joanne Segars, has explicitly confirmed that alternative benefit structures (such as Collective Defined Contribution) are not being considered in the second phase of its work. Instead, it is more likely that the JEP will articulate an even more ambitious critique of USS which will demonstrate even more convincingly than its first report did that a long-term contribution rate of 26% or even lower will not only be sufficient to protect benefits but also compliant with regulations. If employers want to carry out benefit reform, they will be working against the grain of the JEP’s second report, not with it.

So my first set of questions for this JNCC is: when the University talks about ‘benefit reform’, is it referring to reforms that might reduce the amount of money promised to pensioners in retirement? And does the University affirm its commitment to benefit reform in the next valuation cycle, regardless of what the JEP recommends?

It is particularly significant that the loudest call for benefit reform thus far has come from this University, because the Vice Chancellor, David Eastwood, is also Chair of the USS Trustee Board. The HR Director notified me in a meeting in April 2019 that the VC is not directly involved in formulating the University’s consultation responses, but it is hard to believe that he never talks about USS with members of the SMT, University Executive Board, or any other parties involved in formulating the response, and I would appreciate any more light the JNCC can shed on his role. If the Vice Chancellor played any part in the calls for benefit reform and the implicit hostility to the JEP’s arguments that mark the University’s consultation response, that would further increase the likelihood that USS is poised to dismiss the JEP’s second report and continue to insist on a contribution rate which employers will deem unaffordable.

However, that is not the only reason why the Vice Chancellor’s behaviour merits scrutiny. The Financial Times recently reported very serious allegations against him by one of his fellow trustees, the statistician, Professor Jane Hutton. Professor Hutton claims that he played a lead role in withholding crucial information from her about the 2017 valuation, a valuation whose deficit she believes may have been ‘substantially overestimated’. At the same time, the Financial Times has also reported that the Vice Chancellor withheld crucial information about the current, 2018 valuation from Professor Hutton and from other trustees: specifically, an email which the VC received from The Pensions Regulator contradicting a series of inaccurate claims by USS about the Regulator’s approach to quantifying risk. This is important because it was USS’s misrepresentation of the Regulator’s approach that underpinned its decision to reject the most important proposals of the Joint Expert Panel and attach conditions to others.

One of David Eastwood’s specified duties as Trustee Chair is to ensure that the Trustee Board has access to relevant information. He failed in that duty twice. First, he failed to share the email when he received it in January. Secondly, and more egregiously, he continued to withhold it even after Professor Hutton specifically asked him about the issue in March.

In short, the Vice Chancellor of the institution which appears to have pre-emptively dismissed the outcome of the Joint Expert Panel’s second report has also, in his capacity as USS Trustee Chair, suppressed evidence that undermines USS’s response to the JEP’s first report.

Can we expect employers to hold the VC to account? This seems unlikely, because the VC is not only Chair of the USS Trustee but is also a President’s appointee to the Board of the employers’ representative body, Universities UK. At the same time, one of his former protégés at Birmingham, Alistair Jarvis, is now Chief Executive of Universities UK, and another, Adam Tickell, chairs the Employers’ Pensions Forum and served as a UUK negotiator in the last phase of the dispute. On top of that, UUK actually assisted David Eastwood in suppressing the Regulator’s email: key figures in UUK, including Tickell, also received a copy of the email, but they failed to share it or communicate the substance of it with employers. With all this in mind, it is hardly surprising that UUK responded to the Financial Times’ reports by affirming its confidence in the USS Trustees.

Given all this information, I would like the University to answer the following question: did the Vice Chancellor behave appropriately in withholding The Pensions Regulator’s email from employers and from the rest of the USS Trustee Board, even after Professor Hutton asked about it?

It has become clear that Universities UK will stand behind David Eastwood and continue to support his and USS’s worst behaviour, regardless of what the JEP recommends. That is one of the reasons why UCU is preparing for another strike ballot. What we want employers to do is cover the cost of increases above 26% arising from the 2017 and 2018 valuations, or compensate members for costs whenever they have incurred or will incur them.

We are asking for this not because the costs are justified – they are not. We are asking because they should not be shared by members. In this specific case, members have already suffered financial hardship through docked strike pay and the 2017 increases, both of which were caused by an industrial action which employers instigated by failing to hold USS to account, manipulating the consultation process, and making an unnecessary and unjustified proposal to close the Defined Benefit element of the Scheme. More generally, cost-sharing is not required by the Scheme rules. It is intrinsically unfair because employers benefit from any overpayment by saving money when the rate can be reduced, whereas members are likely to have retired and receive no such advantage. Most importantly, though, it is clear that money is the only language employers understand. They have enabled and supported the crisis of governance in USS, and it seems clear that the only thing that will concentrate their minds on achieving a fair, sustainable future for USS is the prospect of a further increase in their own contributions.

Since the valuation outcome preferred by employers, Option 3, involves phased contributions, it should be easy for employers to agree to cover the first phase of those increases – from 26% to 30.7% – in full, rather than forcing them on to members. This would require them to pay only an extra 1.6%, which they can easily afford. Even the higher increase, of 34.7% after a 2020 valuation, is within the realms of affordability for employers: it is only 0.8% higher than the eventual contribution rate which USS originally proposed for employers on the basis of its 2017 valuation. The affordability of that increase was supported by independent assessments of employer finances carried out by two audit firms for USS. In any case, if employers want to insist that 34.7% is unaffordable, the staggering of the increases still leaves them plenty of time to negotiate reforms of USS that will make the Scheme as a whole much more affordable.

Thanks to the efforts of UCU members and the JEP, we have a solution within view. Employers should commit to paying all of the increases scheduled under Option 3. At the same time, they should take steps to resolve the failures of governance and valuation method that have been exposed by the JEP, Professor Hutton, and others. A minimum necessary (but not sufficient) first step which they need to take in the right direction is to ask David Eastwood to recuse himself from all future meetings of the USS Trustee Board until the problems reported by the Financial Times have been properly investigated (we know, for example, that USS is under investigation by The Pensions Regulator and the Financial Reporting Council). It would send a powerful message if the first request for David Eastwood’s recusal came from his own University.

Yours,

Nick Hardy
Pensions Officer, University of Birmingham UCU
UCU elected negotiator, USS Joint Negotiating Committee
UCU National Executive Committee (Midlands HE, pre-92)